Quote:
Originally Posted by
BranRx 
Or better yet, how do you smooth out the bi-polar highs and lows of capitalism? Its during the lows that this kind of thing will happen. And you cant say its this person or that person, this corporation or that one. Its not an individual entity, its something within the workings of capitalism itself that needs to be corrected. We are, or at least were a free market capitalistic society, and if it was as good as people said it was then we shouldnt be worrying about anything. The system will correct itself. Or will it? If it doesnt, guess what your perfect model wasnt perfect.
A major problem is the federal reserve.
Look, I'm not going to go on a rant like one of the Ron Paul supporters. The federal reserve has benefits. When the private sector wants more access to money, the federal reserve can accomodate it. They can lend out money at low rates, they can allow banks to (fraudulent in a free market) have lower reserves, or they can try and lower the federal funds rate so that it is easier to borrow money. hose are all great violations of a "true" free market. But when the economy is growing, and banks/investors see a lot of opportunity, but don't have the cash to invest in those, the federal reserve can greatly accelerate growth by providing the capital, or at least providing access to the capital. No doubt, that if banks could only loan or invest out of pure savings, a LOT of economic opportunity would have been left untouched, or expounded upon by business in other nations.
The problem is that the private sector, unlike what Ron Paul, Hayek, or really any conservative believes, isn't perfect. It gets caught up in the moment. It behaves irrationally. It is comprised of human beings who are not rational. Government intervention or not, bubbles tend to form because people buy into the hype...they don't evaluate investments in the long-term. This is further exacerbated by hedge-fund managers, publically-owned companies, and the fact that most stock owners are looking for short- and not long-term, gains.
So IMO, even with no government intervention at all, you will have these bubbles. It happened prior to a central bank in the 19th century. But the Federal reserve, or government intervention, makes these bubbles so much worse. That access to the money makes the bubbles so much bigger, because these irrational people now have more capital to do inane things with.
Whether through ignorance, trust of the private sector, or cronyism, the federal reserve never checks the money...if the market wants more money, they provide it. They rely on the private sector to tell them what the supply of moeny should be. In any case, even if the federal reserve independly set the money supply and was more cautious, I doubt that government people woudl make a smart decision.
In summary, the Federal Reserve contributes greatly towards accelerated growth and extended recessions. Right now, everyone is focused on the bust...but it is foolish to forget its benefits during the booms. Can you have one without the other? I don't know...it seems like there could be a middle ground. Why not get rid of the discount window, and raise the minimum reserve requirements from 1 and 10 to 10 and 40?
Edited by rolexian - 10/30/11 at 11:35pm
